Lawmakers Demand Crackdown on U.S. Program Enriching Wealthy

Feb. 22 (Bloomberg) -- Two top lawmakers on small business
matters renewed calls for tougher enforcement of the rules in a
program that steers government contracts to the socially and
economically disadvantaged.

Some wealthy entrepreneurs have received hundreds of
millions of dollars in federal contracts reserved for the
disadvantaged by repeatedly qualifying for the one-time program,
Bloomberg reported yesterday, based on a review of Small
Business Administration and procurement data. The preference
system, under Section 8(a) of the Small Business Act, accounted
for $16.7 billion in government awards last year, more than the
budget of the Commerce Department.

“It is unfortunate that news headlines and media reports
continue to underscore the necessity for more vigorous oversight
within the Small Business Administration’s 8(a) program,” said
Senator Olympia Snowe of Maine, the ranking Republican on the
Small Business and Entrepreneurship Committee. She sponsored
legislation passed by the Senate last year that would tighten
oversight of SBA contracting.

In the House of Representatives, which hasn’t taken up the
measure, Missouri Republican Sam Graves, chairman of the Small
Business Committee, said the Justice Department “is reluctant
to use its resources to pursue small business fraud cases if the
cost of prosecution will outweigh the costs of recovery.”

The Graves panel is considering a bill that would address
fraud in government procurement, said D.J. Jordan, a spokesman
for the committee, in an e-mail. The proposal by Representative
Mick Mulvaney, a South Carolina Republican, “will make it
easier to crack down on deceptive large businesses hiding behind
small businesses,” Jordan said.

‘Worst Examples’

Snowe’s bill, known as the Small Business Contracting Fraud
Prevention Act of 2011, would force the SBA to improve
certification, surveillance and enforcement, she said. The
measure passed the Senate with unanimous consent and has 13 co-sponsors.

Since 1990, the SBA has certified multiple companies at a
single address more than 100 times, based on data compiled by
Bloomberg. Twelve repeat participants have received $412 million
in preferential contracts and more than $1 billion in total
government awards, Bloomberg found. Under the rules, a
qualifying small business should participate only once in the
preference program, which should last just nine years.

“Tomorrow, the inspector general should look into not just
terminating the contracts of the worst examples, but checking
out the more than 100 times the SBA certified multiple companies
at a single address,” said Charles Tiefer, who served on the
U.S. Commission on Wartime Contracting.

Growing Rich

Officials should consider “a potential referral to the
Justice Department for civil clawback proceedings,” said
Tiefer, who is now a professor at the University of Baltimore
Law School.

A Florida family grew rich on $256 million in federal
contracts since 1993, in part through a web of closely held
companies that allowed members to remain 18 years in the nine-year program for the disadvantaged, Bloomberg reported. Brothers
Akhil Agrawal, 44, and Sukrit Agrawal, 46, participated in the
SBA program from 1994 to 2003 and continue to win preferential
contracts today through a joint venture with their father’s
firm, APS Technologies Inc. The family denied any wrongdoing in
a written statement.

“The story of how the Agrawals got rich by manipulating
the system is a textbook example of why vigorous government
oversight is needed before taxpayer dollars are handed over,”
said Nick Schwellenbach, director of investigations at the non-profit Project on Government Oversight in Washington.

More Oversight Urged

The SBA defines the socially disadvantaged as “those who
have been subjected to racial or ethnic prejudice or cultural
bias,” such as women, blacks, Hispanics, Native Americans and
Asian-Americans. Eligibility in the Section 8(a) program is
limited to U.S. citizens whose net worth can’t initially exceed
$250,000 and shouldn’t rise above $750,000 while in the program.

“If, in fact, the process can be circumvented to the
extent that it appears that it has been, that would suggest to
me that there needs to be a lot more oversight and perhaps rules
need to be changed in order to ensure compliance,” said Rob
Burton, a top U.S. procurement official under President George
W. Bush. He is now a partner in the Washington office of the
Venable LLP law firm.

Admission to the program for the disadvantaged gives
entrepreneurs a passport to obtain federal contracts that
typically aren’t subject to competition. The U.S. targets 23
percent of its $530 billion in buying each year for small
companies through an array of assistance, of which the 8(a)
designation is only one.

Business owners and members of their immediate families may
participate only once, though the SBA spells out exceptions.
These include approved mentoring relationships and joint
ventures between past and current participants, or if
participants are in different lines of business.

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